‘Bad’ Banks Can Provide Great Investing Returns

Here’s a weekly options trade to make you love this hated industry

The cover of this past weekend’s Barron’s was all about how the biggest and best banks are trading at or below their tangible book value. The cover-story article claims that most of the fear and worst-case scenarios have already been baked in to the nation’s most-prestigious banking stocks.

Barron’s also cited these same companies’ ironclad balance sheets and dividends. Basically, there’s value sitting there in banking and other important financial stocks — and it hasn’t been this way in decades.

Sounds good if you’re looking for a great place to invest some money, right?

Yet, the story today is how hated all things “financial” are. The TV camera loves showing a mob, and that’s exactly what we’re being served — a steady spotlight showcasing unshowered college kids camping out with their signs and a grudge. And now they’re roaming all over Manhattan, chanting at one CEO’s residence after another.

Another Big, Bad Industry Makes Good Money for Investors

This spotlight reminds me of 10 years ago, when the target was the tobacco industry. Remember the lawsuits and the incessant TV coverage — day after day, week after week? It seemed everyone and their dog was in on the class-action lawsuits. Not to mention all the cities, states and the big, bad federal government with its armies of lawyers smelling the blood!

Know what? Through it all, Phillip Morris (NYSE:PM) never once missed a dividend payment. In fact, the company kept increasing the payouts throughout this entire period of absolute hell!

Now I don’t care much about the dividend side of things — I’m pointing that out to explain just how well-run some of the country’s top companies are, regardless of what the public’s perception of them is.

The takeaway here is that the tobacco companies emerged from that tangled, sue-happy time just fine. In fact, investors were handsomely rewarded, simply by doing nothing during that entire time!

Hate the Companies, But Love the Potential Profits (for You)

Whatever Big Tobacco’s opponents thought about the companies and their products, the fact is, investments in them paid off. Dividends were re-invested, which bought up more shares of depressed stock prices … stock buybacks picked up … spin-offs took place, enhancing shareholder value … and the stock prices themselves surged for many years after this spotlight moved away.

Fast-forward to today. Now it’s the banking sector’s turn to be in the crosshairs. It’s fun, easy and politically correct to hate on banks and anything Wall Street or financial in nature. It’s the perfect storm.

But underneath, publicly traded financial companies have been forced to get fit, lean and mean. That’s what staring survival in the face will do. Many of them have paid back their TARP loans, and are otherwise sitting pretty. And there they sit all muscled up, while being kicked around, joked about and spotlighted in the media as bad.

It’s one thing for the Occupy Wall Street faction to protest against and even boycott the banks. But for investors to turn their backs on the banks means giving up some nice returns of their own. Did you know Goldman Sachs’ (NYSE:GS) trading accounts are estimated at $800 billion in size? That’s just one company!

So here’s the most-hated sector, banking and investment firms. They’re front-and-center in the media, which makes sure to highlight these mobs every single night on the evening news. And it’s stupid.

This kind of one-way harassment will lead to this sector breaking out — you watch — and it’ll happen subtly. Just like with the tobacco companies of a decade ago.

Banks Will Do Well, With or Without Popular Approval

Eventually the protestors will go home, and the outrage over the banks will die down. But there will always be something else for people to get upset about. Maybe the spotlight nudges over to where the “tents” will camp out next … maybe on the front lawns of Big Oil CEOs, or maybe the coal guys?

One thing that won’t be reported on, however, is just how politically connected they are and how many powerful people are in place throughout the banking sector. History is simply repeating itself — the political establishment couldn’t have afforded for there to be no tobacco industry. This free-flow of revenue funds all kinds of pet projects for politicians to look good to their folks at home.

Think “gravy train.” And it’s the exact same way with the banks! Since all the money is contained inside banks, this cash flow stream is going to be protected by the powers-that-be.

But enough of politics and politicians. Let’s talk about making money from the banks … collecting money from them starting as soon as today (instead of the other way around!) … and doing it with weekly options. Be sure to check out today’s trading opportunity on the next page.